Canara Bank to PNB, Moody's affirms rating for five PSBs on merger decision

Rating agency Moody’s has affirmed ratings for five public sector banks (PSBs) — Canara Bank, Oriental Bank of Commerce, Syndicate Bank, Union Bank and Punjab National Bank — that will undergo mergers. Moody’s also upgraded rating outlook on PNB from “stable” to “positive”. 

The rating agency affirmed the local and foreign currency deposit ratings of Canara Bank, OBC, Syndicate Bank and Union Bank at Baa3/P-3. It has also affirmed their Baseline Credit Assessments (BCAs) and Adjusted BCAs at ba3.

The affirmations reflect Moody’s expectation that the acquiring banks will receive sufficient capital injections to absorb potential write-downs, if any, arising from the merger. 

After the merger, banks are expected to maintain a common equity tier 1 (CET1) ratio above the Basel III requirement of 8 per cent. This includes the minimum CET1 ratio of 5.5 per cent and a capital conservation buffer of 2.5 per cent, Moody’s said. The affirmation of PNB's ratings reflects that the bank’s BCA is likely to improve after the capital infusion.